By the end of last week, any lingering hope that the housing downturn in the United States would be contained had vanished. As this week begins, signs of contagion seem to be everywhere.
Unnerved by mounting losses in mortgage-related investments, investors have started to shun tens of billions of dollars in corporate debt offers as well – and seem likely to go on doing so for months to come. That would stanch the flow of easy money that has fueled the leveraged buyout boom, which would, in turn, expose the extent to which stocks have also come to depend on cheap credit.
Stocks took a dive last week because debt-driven buyouts had long boosted the share prices of targeted companies. Stocks have also benefited directly from easy money because public companies have borrowed heavily to buy back their own stock, a ploy to drive up earnings per share.

American Home Mortgage Investment Corp shares fell sharply Monday after the company delayed its quarterly dividend, announced “major” write-downs, and said lenders were demanding it put up more cash.
… American Home specializes in prime and near-prime loans. It has, however, made many loans that allow borrowers to produce little documentation of income or assets. American Home, organized as a real estate investment trust, recently commanded a roughly 2.5 percent share of the U.S. mortgage market.
“Bankruptcy is not out of the question,” said Matt Howlett, an analyst at Fox-Pitt Kelton Inc. in New York. “It needs to find a partner with alternative funding and hope the market turns around. It’s going to be tough.”
He added, “It’s clear now we’re in a liquidity crisis. Any loans that aren’t pure prime are falling in value.”

Shares of mortgage real estate investment trusts plummeted Monday after the New York Stock Exchange halted trading of shares of American Home Mortgage Investment Corp. pending an announcement from the troubled mortgage lender.
The move spooked already jittery investors, deepening worries that the subprime mortgage market fallout is far from over.

The U.S. sub-prime mortgage crisis claimed lender IKB as a first victim in Germany on Monday, triggering sharp falls in other German bank shares on fears that they, too, could face sudden problems.
… But IKB’s exposure to complicated U.S. mortgage investments was the first time the sub-prime spectre had loomed in Europe’s biggest economy. It scared investors, fuelling worries that other German banks could be affected in the same way.